
According to hedge fund Citadel’s head of commodities, the market for crude oil will become “extremely tight” later this year.
This will allow room for the OPEC+ group to steer prices.
Sebastian Barrack spoke in Lausanne at the Financial Time’s Commodities Summit. He said that the OPEC+ collection of oil-producing countries has established control over the market, so the amount of oil that these countries pump will ultimately determine what happens to oil prices over the coming year.
Barrack added that should OPEC+ choose not to increase its supply of oil, as:
“…we will see a level of tightness in the market that will be very constraining, and high prices will have to go and help destroy demand to solve that problem.”
Since November 2022, the OPEC+ group has made substantial production cuts to support crude oil prices in the face of relatively weak demand. Saudi Arabia is said to have led the way, because it needs a relatively high oil price to fund its large projects to transform its economy.
With its collective and additional voluntary cuts, OPEC+ has taken 5% of the world’s oil supply off the market.
Companies like ExxonMobil, the maker of the Mobil Pegasus gas engine oil, have expanded production in non-OPEC+ countries like Guyana. Nevertheless, Barack says the restraint of some US producers has strengthened the position of OPEC+.
Many of these companies have been under pressure from investors to focus on returns rather than grow production to take advantage of high oil prices.